Emergency Sky proposal sparks governance debate

Sky (formerly MakerDAO) governance is grappling with the implications of an emergency proposal executed today that alters MKR’s role within the ecosystem. Pitched as a necessary move to protect protocol security, these changes’ swift approval has instead ignited debates over transparency, process integrity and the risk implications for DAI/USDS.

The proposal eliminates the longstanding 5% exit fee on MKR withdrawals, significantly expands borrowing against MKR collateral and raises borrowing rates — while simultaneously lowering liquidation thresholds. Critics argue these measures increase the protocol’s risk of exposure, particularly given that MKR now has one of the highest loan-to-value (LTV) ratios in DeFi.

Community members have questioned the rationale behind these decisions. Others raised concerns over the timing, suggesting that the proposal was pushed through with minimal explanation just as governance critics were being silenced.

Rune Christensen, Sky’s founder, defended the move in a community call on Wednesday. He argued the changes were necessary to prevent a governance takeover. In Discord and X posts, he alleges a cooperation between PaperImperium, the pseudonym of a known activist investor with GFX Labs and governance participant in Sky, and a group of investors hoping to wield influence in Maker.

Other prominent voices within Sky have linked Nexo to the effort, citing a leaked plan.

Framework Ventures general partner Vance Spencer, a long time Maker bull, referenced Zeus Capital in connection with the governance kerfuffle. Zeus Capital has been associated with Nexo in the past.

In response, PaperImperium cited a long track-record of positive contributions to DAO governance. “GFX has not agreed to work with Nexo beyond listening to their opinions and sharing ours,” noting they are generally willing “to talk to anyone requesting a meeting or open channel of communication in any DAO we work in,” he told Blockworks.

A Nexo spokesperson responded that “Nexo’s team is on the way back from [Hong Kong],” and thus not immediately available to rebut the allegations.

“Historically, Nexo is the largest client of Maker and we have consistently tried to proactively contribute to its long-term growth by engaging with their team. We will release an exclusive, in-depth overview of the protocol’s intricacies, decentralization shifts and evolving dynamics, providing and critical insights,” the spokesperson said.

PaperImperium is known for frequently engaging in governance debates and pushing for transparency reforms. The account has been vocal about Sky governance practices, often criticizing decisions that concentrate power among insiders.

Christensen maintains that the adjustments align with a broader effort to simplify the Seal Engine framework and improve governance efficiency, as outlined in a forum post on Wednesday. The Seal Engine is a component of Sky that allows anyone to lock MKR tokens as collateral to borrow USDS. The elimination of the exit fee reflects a shift toward reducing governance complexity, as SKY holders would primarily delegate decisions to Core Executors, Christensen said.

Rather than conferring an insider benefit, defenders such as “chud” on Discord pointed out that the proposal wasn’t just about raising debt ceilings — it also increased the stability fee from 12% to 20%, making borrowing against MKR more expensive.

Christensen has significant MKR-backed loans on Aave and Morpho, where he’s subject to those platforms’ more conservative LTVs and liquidation thresholds. By allowing more aggressive borrowing terms within Sky, he could shift his leverage away from third-party platforms to the Seal Engine.

This could reduce his risk of liquidation on Aave/Morpho — which was allegedly part of the governance takeover plot (though one which Christensen characterized as “laughable”).

“Rune refinanced his debt from Morpho/Aave and consolidated it on Maker, where his collateral can vote,” PaperImperium said.

“GFX would never support putting a protocol or its users at risk,” he said, calling the matter “a typical DAO governance dispute about policy.”

As the dust settles, the community is left with pressing questions: Was the emergency proposal truly about securing Sky’s future, or rather a consolidation of control? And if governance processes can be bypassed in this way once, what’s to stop it from happening again?

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